Restrictions by object in ISU: why has the Commission not drawn the lessons from Cartes Bancaires and Maxima Latvija?

The Commission usually takes some time to publish its decisions. This is not necessarily a bad thing, at least for the purposes of this blog. We now have the chance to discuss a few decisions that have (finally) come out, and complement (or complete) our first thoughts on them.

I will start with ISU, about which I wrote earlier this year. The non-confidential version of the decision can be found here.

In my previous post, I asked myself whether the practice at stake was really a restriction by object. You will remember that the Commission took issue with a set of rules adopted by the International Skating Union. These rules sought to constrain athletes’ ability to take part in competitions run by rival organisations.

The Commission concluded that the rules, which are (in essence) a vertical restraint providing for a non-compete obligation, amount to a ‘by object’ infringement. Now we know the reasoning behind this conclusion.

There is something remarkable about the decision. If you take a look at it, you will realise that the Commission does not seem to incorporate the lessons of the most recent – and directly relevant – Court rulings, namely Cartes Bancaires and Maxima Latvija.

To prove my point, I propose a simple exercise: apply to the facts underpinning Cartes Bancaires and Maxima Latvija the reasoning found in ISU. You will come (inevitably) to the conclusion that the practices at stake in these two cases were restrictive by object.

In ISU, the Commission concludes that the eligibility rules are a ‘by object’ infringement for three main reasons:

The objective and subjective purpose of the rules was to preclude other organisations from running competing events.

The International Skating Union sought to protect its own economic interest through the rules.

The eligibility rules were not related to a legitimate sporting objective.

Remember Maxima Latvija? In that case, the ‘anchor tenant’ of a shopping centre was given the power to veto the renting of other premises in the mall to third parties. The objective purpose of such a rule is clearly to avoid competition – and the Court ruling is based on this premise. In this sense, the case is no different from ISU.

And the anchor tenant, by restricting competition to itself and limiting the shopping centre’s freedom of action, was certainly trying to protect its own commercial interests (by the way: which firm doesn’t?).

In spite of the above, the Court ruled in Maxima Latvija that the practice was not restrictive by object.

Remember Cartes Bancaires? Essentially, the contentious rules sought to penalise one category of competitors. The objective purpose of these rules was to hinder these firms’ ability to compete. What is more, there was direct evidence in the case suggesting that the subjective intent of the rules was indeed to restrict competition and thus to protect the economic interest of another category of firms.

If one were to follow the reasoning in ISU, these two factors would be sufficient to conclude that the practice was restrictive by object. But you all know that the Court came to the opposite conclusion in Cartes Bancaires.

Cartes Bancaires is important for another major reason. The Court made it quite clear that a practice that seeks to address a genuine free-riding concern is not a ‘by object’ infringement. In other words: the fact that some firms seek to protect their economic interests is not in itself an issue (again, which firm does not seek to advance its economic interest by means of an agreement within the meaning of Article 101 TFEU?). The issue is instead whether the firms seek to address a market failure or simply extract rents (as in a cartel agreement).

The Court concluded that the measure was plausibly pro-competitive (and thus not ‘by object’) in Cartes Bancaires. And the free riding argument is also compelling in ISU, as I mentioned last time (but the issue does not seem to be given the relevance it deserves in the decision).

Against this background, the question that I find intriguing is why the Commission has not followed the case law on restrictions by objectin ISU.

This question is intriguing in this particular case because establishing the restricting effects of the eligibility rules was a ‘home run’ for the Commission. Given the position of the International Skating Union, it could not have been much easier to conduct an effects analysis (as the Commission does in the case).

Had the Commission followed the ‘by effect’ route alone, the case would have been entirely uncontroversial. I would say more: the analysis of the Commission in the ‘by effect’ section shows that the case makes enormous sense from a prioritisation perspective too.

Why, if it was not at all necessary (and was in fact potentially counterproductive), did the Commission insist on qualifying the rules as a ‘by object’ infringement in ISU?

The most convincing explanation is that the Commission, as a repeat player, is interested not only in reaching the desired outcome in individual cases but in shaping the law in a particular way. In this sense, ISU provided an excellent opportunity to advance its interpretation of the notion of restriction by object in the wake of Cartes Bancaires.

I have to say I am not particularly surprised by this. I have spent the past couple of years reading pretty much every Commission decision, and this is a consistent pattern of behaviour across the board (Article 101 TFEU, Article 102 TFEU and merger control).

Examples? Just think of how the Commission interpreted Delimitis in Scholler and Langnese-Iglo (Valentine Korah, in her unique style, wrote at the time – mid-1990s – that Delimitis appeared ‘not to have been read’).

More examples? The Court emphasised, from the outset, that ‘competition’ for the purposes of Articles 101 and 102 TFEU means ‘competition that would have existed in the absence of the practice’. However, the Commission failed to consider the counterfactual in several landmark decisions that were annulled as a result.

In fact, if you read ISU, you will identify several controversial statements in this regard. For instance, the Commission asserts that the members of the International Skating Union – that is, the national associations – are potential competitors. However, this remarkable statement is not substantiated – as if the lessons from European Night Services, CISAC or E.On Ruhrgas (‘real, concrete possibilities’) had not been learnt.

Conclusions?

What do we make of the failure to incorporate some of the crucial insights from Cartes Bancaires? It is neither good nor bad. It is a reality and a feature of the EU competition law system we have to acknowledge and with which we have to live.

We have acquired sufficient experience over the years to know that the Commission is likely to behave in this way – across provisions and over the years. I would say that, first and foremost, it is useful for the authority to be aware of this reality, so as to anticipate when and why administrative decisions are more likely to be annulled.

2 Responses

I still have to carefully read the decision (promise I’ll do), but It seems to me that the Commission’s position is that restrictive agreements that would be legitimate if applied to certain situations only, but are in fact disproportionately broad in their wording and intended application (so as to completely preclude competition regardless of the legitimate purposes which would justify the restriction), should be characterized as by object restrictions. In other words, any time the anti-competitiveness of the agreement under Article 101 is a matter of “degree” or “proportionality” of the restriction with respect to a certain legitimate purpose, the Commission takes the stance that the restriction nonetheless falls within the “by object” box if the disproportionate nature of the agreement emerges prima facie from the wording and intended application by the interested parties (you can also see this in Pierre Fabre and, by contrary, in Coty). Indeed, one can argue that in such a case there is no need to look into the actual effects produced on the relevant market by the application of the agreement, since it is already clear from the wording and/or declared intention of application of the agreement that it is in abstract capable (or even likely) to produce a sufficiently serious degree of harm to competition.

If that were the position of the Commission, and assuming it is consistently held and substantiated in the decision, would you still consider such position inconsistent with the cited case law on by object restrictions? Would it be still necessary for the Commission to carry out a fully fledged analysis of the “counterfactual” in terms of actual effects produced by the application of the agreement (or real and concrete possibility that a valuable competitor would have entered the market absent the agreement)? Or would it suffice to stop the analysis at an higher level, i.e. that emerging from the mere wording and intended application of the agreement (as declared in abstract terms by the interested parties), provided of course that the overall legal and economic context has also been correctly considered and taken into account?

First: when you read the decision, you will realise that the Commission’s approach has nothing to do with the approach you describe. Nothing in the decision, in other words, suggests that the approach you describe is ‘the Commission’s position’.

Second, the case law is clear that examining the wording of the agreement and the declared intention of the parties is not enough. Time and time again, the Court has emphasised the importance of considering the economic and legal context of which the practice is part.

Third, considering the economic and legal context (including the counterfactual) is not tantamount to examining the effects of the agreement. There is a clear difference between the two, and they should not be conflated (the Court does not conflate them).

Fourth, I believe your approach has a point (which is not shared by the Commission, but by the Court). The lesson from Cartes Bancaires is that when an agreement is a credible means to attain a legitimate objective, it is not restrictive by object. This fits very well with your idea of proportionality. The exercise consists of examining whether, indeed, the contentious agreement is a credible means to achieve that aim (or whether instead the aim is just an excuse to restrict competition).